Gujarat High Court
Commissioner vs H on 31 March, 2010
Gujarat High Court Case Information System
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TAXAP/337/2009 12/ 12 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 337 of 2009
For
Approval and Signature:
HONOURABLE
MR.JUSTICE D.A.MEHTA
HONOURABLE
MS.JUSTICE H.N.DEVANI
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1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
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COMMISSIONER
OF CENTRAL EXCISE - Appellant(s)
Versus
H
K MOULDERS - Opponent(s)
=========================================
Appearance :
MS
AMEE YAJNIK for
Appellant(s) : 1,
None for Opponent(s) :
1,
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CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
and
HONOURABLE
MS.JUSTICE H.N.DEVANI
Date
: 31/03/2010
ORAL
JUDGMENT
(Per : HONOURABLE MS.JUSTICE H.N.DEVANI) In this appeal under section 35G of the Central Excise Act, 1944 (the Act), the appellant-revenue has challenged the order dated 22nd July 2008 made by the Customs, Excise & Service Tax Appellate Tribunal (the Tribunal), by proposing the following question :
Whether in the facts and circumstances of the case, the Tribunal is justified in determining the quantum of credit as per the Larger Bench's judgement in Vikram Ispat v/s Commissioner 2000 (120) ELT 800 (Tri-LB), where the break up of duty was available invoices and CENVAT credit was restricted in case of 100% EOU's as per sub rule 6(a) of Rule-3 of CENVAT Credit Rules, 2001?
The facts of the case stated briefly are that the respondent had availed the CENVAT credit of the duty paid on the inputs under the CENVAT Credit Rules, 2001 (the Rules). The Central Excise Audit Party, during the course of scrutiny of the records of the respondent, noticed that during the period from 1.7.2001 to 10.2.2002, respondent had availed CENVAT credit on the basis of invoices issued by a 100% Export Oriented Unit (EOU) viz. M/s Elque Polyester Ltd., Falta EPZ, West Bengal. The said 100% EOU had availed the benefit of Notification No.2/95-CE dated 4th January 1995 and had paid 50% of the total duty payable, whereas the respondent had availed of CENVAT credit equivalent to the basic excise duty shown in the input invoices which according to the revenue was not admissible. According to the revenue in view of the provisions of clause (a) of sub-rule (6) of rule 3 of the Rules, since the supplier of the inputs had paid 50% of the additional duty (i.e. basic excise duty) on the goods cleared to the respondent, the respondent was eligible to take CENVAT credit equal to the actual additional duty paid by the supplier of the inputs i.e., 100% E.O.U. Therefore, CENVAT credit of Rs.1,46,511/- wrongly availed by the respondent was required to be recovered from the respondent. Accordingly, a show cause notice came to the respondent which came to be adjudicated vide Order in Original dated 27th August 2007, whereby the demand came to be confirmed along with interest. Penalty equivalent to the amount of duty also came to be imposed.
Being aggrieved, the respondent preferred an appeal before Commissioner (Appeals), who vide order dated 29th November 2007 allowed the appeal. Revenue carried the matter in further appeal before the Tribunal which came to be dismissed.
Ms. Amee Yajnik, learned Senior Standing Counsel for the appellant-revenue submitted that under clause (a) of sub-rule (6) of Rule 3 of the said Rules, the respondent assessee was eligible to take CENVAT credit equal to the additional duty leviable on like goods under section 3 of the Customs Act, 1975 paid on such inputs. That in the facts of the present case, the supplier of inputs had paid 50% of additional duty on the goods cleared to the respondent. Hence, the respondent was eligible to take CENVAT credit equal to the actual additional duty paid by the supplier of the inputs i.e. a 100% EOU. It was submitted that in the circumstances, the CENVAT credit to which the respondent was entitled was restricted to the portion which was equivalent to additional duty of customs leviable under section 3 of the Customs Tariff Act, 1975. It was further submitted that the supplier had paid Rs.8,52,799/-, whereas the respondent had taken credit of Rs.2,93,023/- which was equal to the additional customs duty. Since the supplier had paid only 50% of the additional duty (i.e. basic excise duty), the respondent assessee was entitled to avail of CENVAT credit to the extent of the actual additional duty paid by the supplier of the inputs.
As can be seen from the order of Commissioner (Appeals), Commissioner (Appeals) has noted that the respondent had received goods from a 100% EOU. Goods manufactured by a 100% EOU are governed by section 3(1) of the Central Excise Act, which provides that the duty of excise shall be an amount equal to the aggregate of the duties of customs on like goods produced or manufactured outside India if imported into India. Thus, at the time of clearance of goods by a 100% EOU, what is paid is duty of excise and not customs duty though quantum of collection is equal to the duty of customs. It is observed that the measure of collection of duty does not change the nature of duty. Hence, what has been paid by the supplier is duty of excise and not duties of custom (basic customs duty, additional duty etc.) and as such, the adjudicating authority had erred in holding that the supplier unit has paid 50% of the additional duty. Commissioner (Appeals) has further found that under rule 3(6)(a) of the Rules, as they stood at the relevant time, the respondent was eligible to avail of CENVAT credit equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975, paid on such inputs. Commissioner (Appeals) was of the view that on a plain reading of the said provision, credit was required to be restricted to the extent of duty which was equal to the additional duty leviable on like goods. If the additional duty leviable was less than the actual duty paid on the inputs cleared from a 100% EOU, the manufacturer in India would be eligible only for the credit equivalent to the additional customs duty leviable. On the other hand, if the duty actually paid by a 100% EOU on inputs cleared by them was less than availed duty of customs payable on like goods, the manufacturer would be eligible only to the extent of actual duty paid by a 100% EOU. Reiterating that actual duty paid by a 100% EOU in this case is a duty of excise and not basic customs duty, additional duty of customs etc., Commissioner (Appeals) has observed that the supplier unit had paid Rs.8,52,799/-, whereas the impugned order indicated admissible credit of Rs.1,46,511/- i.e. 50% of additional duty leviable and has accordingly, computed that additional duty leviable in the present case at Rs.2,93,023/- i.e. twice the credit allowed. It was held that since the credit admissible to the respondent was equal to the duty paid by the supplier unit or the additional duty leviable whichever is lower, therefore, the credit available to the respondent was Rs.2,93,023/-.
The Tribunal in its impugned order has observed that even though the quantum of duty leviable on the goods manufactured by a 100% E.O.U. is to be determined on the basis of duties of customs on like goods produced or manufactured outside India, if imported into India, the duty is leviable and collected under Central Excise Act. The Tribunal agreed with the view taken by Commissioner (Appeals) that the supplier in the present case has paid excise duty and therefore, the adjudicating authority has erred in holding that the supplier unit has paid 50% of the additional duty. The Tribunal placed reliance upon a decision of the Larger Bench of the Tribunal in Vikram Ispat case, wherein it has been held thus:
16.
Notification No:2/95-C.E., dated 4.1.95 provides that the goods manufactured and cleared by a 100% E.O.U. to DTA will be exempted from so much of duty of excise as is in excess of the amount calculated at the rate of 50% of each of duty of customs leviable read with any other notification for the time being in force on the like goods produced or manufactured outside India, if imported into India, provided that the amount of duty payable shall not be less than the duty of excise leviable on the like goods produced or manufactured by the units in Domestic Tariff Area read with any relevant notification. It is, thus apparent that notification No.2/95 provides a minimum limit of the rate of duty which has to be paid by a 100% E.O.U. while clearing the goods to DTA and this limit is provided by the duty of excise leviable on like goods, manufactured outside 100% E.O.U. However, if the aggregate of duty of customs leviable on goods cleared by 100% E.O.U. is more than the duty of excise leviable on like goods, a 100% E.O.U. has to pay more duty. The Revenue want to restrict the availment of Modvat credit to the components of additional duty of customs paid under Section 3 of the Customs Tariff Act, by bringing the fiction that 100% E.O.U. is a place which is not in India and the sale therefrom within India is akin to import into India. We do not find any substance in this view of the Revenue. The clearance of the goods by 100% E.O.U. are not import in the terms in which it has been defined under Section 2(23) of the Customs Act, according to which, import, with its grammatical and cognate expression means bringing into India from a place outside India. This is also apparent from the fact that when the goods are cleared from 100% E.O.U. to any other place in India, central excise duty under Section 3(1) of the Central Excise Act is levied and not the customs duty under the Customs Act. If it is to be regarded as import, then the duty has to be charged under section 12 of the Customs Act, read with Section 3 of the Customs Tariff Act. The Revenue, it seems is confusing the measure of the tax with the nature of the tax. The nature of the duty levied on the goods from 100% E.O.U. is excise duty and nothing else, whereas for determining the quantum of duty the measure adopted is duty leviable under Customs Act, as held by the Supreme Court in many cases referred to above. The method adopted by the law makers in recovering the tax cannot alter it character. Once it is held that the duty paid by the 100% E.O.U. in respect of goods cleared to any place in India is excise duty, the question of dissecting the said duty into different components of basic customs duty, auxilliary duty, additional duty of Customs or any other customs duty does not arise. The proforma of AR-1A on which the reliance was placed by the learned D.R., cannot change the legal position that the duty levied on 100% E.O.U. is a duty of excise and not customs duty.
17. The only question then arises is how to determine the quantum of Modvat credit available to the manufacturer in respect of goods procured from a 100% E.O.U. The only method, which, we feel, is available to the Revenue is as suggested by the learned Counsel, i.e., first ascertain the additional duty of customs leviable on like goods, if imported into India from outside India; ascertain the actual amount of duty paid by the 100% EOU on the goods cleared to any part of India under Notification No.2/95; after ascertaining these two elements, the Modvat credit has to be allowed to the manufacturer on the basis of the first proviso to Notification No.5/94-C.E. As per the first proviso to this notification credit shall be restricted to the extent of duty which is equal to the additional duty leviable on like goods. If the additional duty is less than the actual duty paid on the inputs cleared from 100% EOU, the manufacturer in India shall be eligible only for the credit equivalent to the additional customs duty. On the other hand, if the duty actually paid by 100% EOU on inputs cleared by them is less than the additional duty of customs payable on like goods the manufacturer shall be eligible only to the extent of actual duty paid by 100% EOU. The reading of first proviso to notification No.5/94 does not indicate at all that the credit of specified duty shall be restricted to the components of additional customs duty actually paid by 100% E.O.U. as excise duty. Had this been the intention of the Government, the proviso would not have been termed in the present form. In that situation the proviso should have provided that the credit of specified duty shall be restricted to the extent of portion of excise duty which is equivalent to the additional duty of customs paid by the 100% E.O.U. The phrase equivalent to the duties of excise specified under (i) and (ii) above paid on such inputs refers to the payment of (a) duty of excise under the Central Excise Act and (b) additional duty of excise under the Additional Duties of Excise (Textile and Textile Articles) Act. If the Additional Customs duty leviable on like goods includes any other excise duty, such as duty under the Additional Duties of Excise (Goods of Special Importance) Act, 1957, the Modvat Credit will not be available in respect of such duty.
The facts are not in dispute. The respondent had availed of CENVAT credit on the basis of invoices issued by 100% E.O.U. The 100% E.O.U. had availed of the benefit of Notification No.2/95 dated 4.01.1995. Under Notification No.2/95 a 100% E.O.U. was exempted from so much of duty of excise as was in excess of the amount calculated at the rate of 50% of each of duty of customs leviable on the like goods produced or manufactured outside India, if imported into India provided that the amount of duty payable should not be less than the duty of excise leviable on like goods produced or manufactured by the units in Domestic Tariff area. In effect and substance, the said notification lays down that the E.O.U. was required to pay a minimum of 50% of each of duty of customs leviable (read with any other notification for the time being in force) on the like goods produced or manufactured outside India. However, this was also subject to a caveat that the amount of duty payable should not be less than the duty of excise leviable on like goods manufactured in Domestic Tariff Area (read with any relevant notification). Thus, if the aggregate of customs duties leviable on like goods produced or manufactured outside India was less than the duty of excise leviable on like goods manufactured in Domestic Tariff Area, the E.O.U. would be liable to pay more than 50% of each of the duty of customs. However, one thing is clear that what is being paid by the E.O.U. is an excise duty and for the purpose of computing the limit of exemption, the measure is 50% of each of the duty of customs leviable on like goods produced or manufactured outside India, provided that the said 50% is not less than the amount of excise duty leviable on like goods produced or manufactured by the units in the Domestic Tariff Area.
Rule 3 of the Cenvat Credit Rules, 2001 makes provision for CENVAT credit. Sub-rule (1) thereof provides that the manufacturer or producer of final products shall be allowed to take credit (hereinafter referred to as CENVAT credit) of the duties enumerated thereunder paid on any inputs or capital goods received in the factory on or after the first day of July, 2001 including the said duties paid on any inputs used in the manufacture of intermediate products, by a job worker availing the benefit of exemption as specified therein, and received by the manufacturer for use, in or in relation to, the manufacture of final products on or after the first day of July 2001. Sub-rule (6) of rule 3 insofar as the same is relevant for the purpose of the present case reads thus:
(6)Notwithstanding anything contained in sub-rule (1),-
CENVAT credit in respect of inputs or capital goods produced or manufactured ,-
xxxxxx by a hundred per cent, export-oriented undertaking or by a unit in an Electronic Hardware Technology Park or Software Technological Park and used in manufacture of the final products in any part of India, shall be restricted to the extent which is equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975 paid on such inputs or capital goods;
Thus, sub-rule (6) carves out an exception to sub-rule (1) of rule 3, inasmuch as the same restricts the entitlement to CENVAT credit in respect of inputs or capital goods produced or manufacture by a 100% EOU to the extent which is equal to the additional duty leviable on like goods under section (3) of the Customs Tariff Act, 1975 (hereinafter referred to as the Tariff Act )paid on such inputs or capital goods.
Thus the Notification No.2/95 exempts 100% E.O.U.s from payment of excise duty to the extent stated thereunder. The excise duty is to be calculated at the rate of 50% of each of the duty of customs leviable on the like goods produced or manufactured outside India. Thus, what is actually paid is excise duty which is computed in terms of the duty of customs leviable on like goods produced or manufactured outside India. Rule 3(6)(a) restricts the CENVAT credit in respect of inputs or capital goods produced or manufactured by a 100% per cent E.O.U. to the extent which is equivalent to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975 on such inputs or capital goods. Thus, on a conjoint reading of Notification No.2/95-C.E. and clause (a) of sub-rule (6) of rule 3, it is apparent that the notification provides for exemption from payment of excise duty by 100% E.O.U.s and the extent thereof. Whereas rule 3(6)(a) restricts the extent of CENVAT credit that can be availed of in respect of inputs or capital goods produced or manufactured by a 100% E.O.U. to the extent equal to the additional duty leviable on like goods under section 3 of the Customs Tariff Act, 1975 paid on such inputs or capital goods. Thus, while computing the extent of CENVAT credit, the only relevant aspect would be as to what is the amount of additional duty leviable on like goods under the Tariff Act paid on such inputs or capital goods. The unit would be entitled to CENVAT credit in respect of the whole of the amount of additional duty leviable and paid on such input or capital goods. The same has nothing to do with the amount of exemption availed of by the manufacturer of the inputs in respect of the excise duty payable by it. Since the actual amount of additional duty paid by the respondent has not been brought on record the method adopted by Commissioner (Appeals) appears to be proper and reasonable.
In the light of the above discussion, the impugned order of the Tribunal cannot be stated to suffer from any legal infirmity so as to warrant interference. No question of law as proposed or otherwise, much less any substantial question of law can be stated to arise out of the impugned order of Tribunal.
The appeal is accordingly dismissed, with no order as to costs.
[D.A.MEHTA, J.] [HARSHA DEVANI, J.] parmar* Top